Title: Market Rally at war: Will It Last Amid Extreme Volatility?
Fullhapce Intelligence employs artificial intelligence and physics-based models to analyze market trends for swing traders, providing comprehensive reports and analysis on a daily, weekly, and monthly basis. Investors should be aware that our sector analysis may experience rapid changes due to the dynamic nature of swing trading, with 'short-term' referring to a period of several days in this context. Investors need to recognize that what is presented in this video and a long-term value investing strategy are of a very different nature. Fullhapce Intelligence disclaims responsibility for the results of any investments made.
The data in this video is as of Friday, October 4th.
If you'd like to see the market outlook first, go to slide 6.
Howdy, Swings!
The week dipped after Iran's attack on Israel, but ended higher as markets recovered from strong jobs data.
As we expected, the SPX fell to 5700 early in the week before recovering and eventually closing above 5750, but the expected late week recovery to 5775 did not happen and instead the market rallied to 5765 early in the week.
It was surprising that the market didn't move higher, especially after the very good jobs report.
Will the market be able to overcome the bad seasonality of October and rally into next week?
Let's take a look at the possibilities with Fullhapce weekly swing market forecast.
Let's review Weekly Market Index Movements.
For the week, most major indices rose, with the exception of the Russell 2000.
SPX: 5751.07, 0.22% up.
Dow Jones: 42352.75, 0.09% up.
NASDAQ: 18137.85, 0.10% up.
Russel 2000: 2228.9, -0.69% down.
Texas crude oil future: 74.45, 9.20% up.
VIX Futures: 27.46, 6.43% up.
Let's look into Weekly sector performance.
Sectors were mixed this week.
Energy was the biggest winner.
Consumer staples, consumer discretionary, materials, and real estate were down.
Let's take a look at some of the reasons why.
Oil prices rose on rising global tensions.
Strong U.S. economic data pushed Treasury yields higher.
In China, optimistic investors continue to drive the market due to continued government support.
Here are the Things to consider.
Around the world, central bank rate cuts and stimulus policies are helping to stabilize equity prices as financial support continues to flow.
The head of the BOE has hinted that it may adopt a more aggressive approach to easing monetary policy.
The ECB's Isabel Schnabel, who had a hawkish stance, reversed course and expressed confidence that inflation will return to its 2% target.
ECB President Lagarde has also recently expressed a positive outlook on inflation.
Japanese officials have indicated that a significant rate hike by the Bank of Japan (BOJ) is unlikely, and Japan's new prime minister has said that the time is not right for a rate hike.
Recent U.S. economic data showed solid growth, with manufacturing and services performing better than expected.
Global inflation rates have also eased.
Despite rising geopolitical tensions, oil prices are expected to remain stable due to various supply issues.
Israel has significantly weakened Hezbollah.
The US port strike was short-lived after a wage agreement was reached.
Trade tensions between the EU and China have eased somewhat following the recent Eurozone vote on Chinese electric vehicle tariffs.
Here we present the Weekly Market Forecast for swings.
While the monthly market seems to have become less risky, investors are very cautious as volatility has increased.
Weekly market potential remains strong, but volatility and uncertainty remain extremely high, with strong downside pressure on the market.
As we've seen this week, the volatility has been wild, with the SPX rising to 5770 on the back of Iran's attack on Israel, falling to 5680, and then rising back to 5750 after a strong jobs report and the close.
With so much uncertainty, it's hard to predict the direction of the markets, and tomorrow is expected to be volatile.
Investors seem to have lost confidence and become fearful as the Middle East conflict, which they have been ignoring, has grown to the risk of all-out war.
Nevertheless, our indicators suggested that there would be great volatility and a big fight between bulls and bears, and that meaningful upside pressure was coming.
While it's difficult to predict next week, which starts on October 7, due to the high level of uncertainty, I'm leaning slightly toward the scenario that the market could fall to this week's low of SPX 5675 or the August high of 5650 early in the week, test support, rebound mid-week, and close around 5760.
If CPI and sales reports come out favorable for the market, the market can gain uptrend momentum.
Let's explore some additional insights.If CPI and sales reports come out favorable for the market, the market can gain uptrend momentum.
The biggest problem with the stock market right now is that most stocks are too expensive.
However, strong growth and supportive policies are driving the stock market, so it's likely to continue to rise for some time.
The situation in the Middle East is serious, but there is enough oil supply to cover any temporary disruptions, so unless oil prices spike, this issue shouldn't have much of an impact on the stock market.
The Federal Reserve is expected to slow the pace of interest rate cuts to 0.25% in November, which should reassure markets a bit more than a sharp cut.
The main concern is the upcoming fiscal problems in the U.S. in 2025, including the fight over the debt ceiling.
Let's look at the counterarguments.
The opposing scenario is that the conflict in the Middle East worsens and the market could go below SPX 5600 and test the market's support from there.
The additional rationale for this scenario is as follows.
Oil prices spiked this week amid rising tensions in the Middle East after Iran fired missiles at Israel and plans to retaliate while resolving conflicts in Gaza and Lebanon.
The situation in Ukraine, where Russia has recently been expanding its territory, has also been tense.
This is pushing up commodity prices, which in turn could lead to inflation, which could challenge central banks around the world.
The United Nations reported that food prices rose 3% in September, the largest increase since March 2022.
Bond yields have risen recently as expectations for the Federal Reserve's interest rate decision have shifted following strong US economic data and comments from Fed Chairman Powell.
If September's inflation data hits previous highs, the Fed may have a tough time deciding whether to cut rates in November.
China's September manufacturing data was disappointing and highlighted the country's slowing growth.
All things considered, I think the opposite scenario is feasible, as Israeli Prime Minister Benjamin Netanyahu has already taken a hard line against Iran.
Traders sympathetic to the opposite scenario might consider selling some of their positions before the dip, if possible, or hedging in stages, waiting for the market to bottom before buying more.
The Conclusion is as follows.
We continue to see increasing volatility in the monthly market, and we believe the weekly market remains in a long-term uptrend.
Although unexpected events such as the conflict in the Middle East are rattling the markets, we believe that next week could also see a big move higher followed by a weak close, and then a big battle between bulls and bears.
Traders who agree with our forecast should remain bullish, but may want to consider increasing their hedging early in the week and then buying a little more on the lows.
Traders may also be wise to consider both the main forecast scenario and the counter scenario to effectively manage risk.
Thank you for watching.
Fullhapce Intelligence, the best investment partner for swing traders.